The Working Group
on Non-Resident Taxation constituted by the government on the
recommendations of the Task Force on Direct Taxes has submitted
its report. The Group has recommended certain administrative measures,
the main one being the setting up of an Emerging Issue Task Force
to make timely suggestions to the CBDT on cross border transactions
as and when they emerge and based on such recommendations the
CBDT has been advised to issue public circulars to provide certainty
to the taxpayers. A tax advisory Group has also been suggested
to point out reservations that India may have in relation to matters
stated in the commentary of the OECD or UN Model Conventions.
The Group has further
recommended that certain terms used in the Double Tax Avoidance
Treaties may be interpreted to avoid any uncertainty in the minds
of the taxpayers or different tax authorities working at different
places. On the rate of tax for foreign companies, the Group is
of the view that if the recommendations of the Task force on Direct
Taxes regarding exemption of dividend tax is accepted, the tax
rates for foreign companies should be brought down to the level
of the rate for domestic companies. Based on the principle of
tax equality, the group has recommended abolition of certain exemptions
available to non-residents including the status of not ordinarily
resident. With regard to withholding tax on remittances, the Group
has recommended that an option be provided to the deductor to
remit 80% of the amount on his own on the condition that the concerned
bank undertakes to hold the balance 20% as ‘good for payment’
and to pay the amount of tax, whi! ch may finally be determined
on such remittances. In any case, such liability is not expected
to go beyond 20% of the remittance.
On Transfer Pricing,
the Group has listed the issues on which CBDT has been advised
to issue necessary clarification without much delay. With a view
to make the domestic companies more competitive in the international
market and to provide incentive for the flow of funds to the parent
Indian company, the Group has recommended allowance of underlying
tax credit. In this scheme, credit would be given for not only
tax withheld at source on the dividend pay out by the overseas
subsidiary but also in respect of the tax suffered on distributed
profits.
The report has been
put on the website of the Ministry of Finance at www.finmin.nic.in.
